TOKYO (Bloomberg) -- The Japanese government said the economy is “picking up,” raising its assessment for a third month as stimulus measures prop up household spending and demand from abroad improves.

Even as the recession moderates, the economy is “in a difficult situation,” the Cabinet Office said in a monthly report in Tokyo today. Last month it said signs that Japan is “picking up are seen in some areas.”
Prime Minister Taro Aso’s 25 trillion yen ($271 billion) in extra spending helped consumer sentiment climb to an 18- month high in June, separate Cabinet Office figures showed today. The government upgraded its view of exports, business sentiment and consumer spending, which accounts for more than half of the economy.
“The stimulus packages are helping a bit, although the strength of the rebound is likely to be weak,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo.
The last time the government made three consecutive upgrades to the evaluation was in March to May 2002, shortly after the economy began its longest postwar expansion. That recovery ended in October 2007, and Japan has been mired in its worst postwar recession ever since, hurting the ruling Liberal Democratic Party’s chances of retaining its majority in lower- house elections to be held on Aug. 30.
Car crash
“Japan isn’t in a recovery phase,” Economic and Fiscal Policy Minister Yoshimasa Hayashi said at a news conference in Tokyo. “Japan’s economy had surgery after a car crash, and now it’s time for rehabilitation.”
Household spending advanced in May for the first time in more than a year. Aso’s administration has given cash handouts of 12,000 yen to each resident, as well as subsidies for the purchase of fuel-efficient cars and incentives to buy eco- friendly consumer electronics.
“Their effect is spreading gradually,” Fumihira Nishizaki, director of macroeconomic analysis at the Cabinet Office, said of the stimulus plans. “But there’s a reasonable chance that the economy will resume deteriorating,” he said, citing a worsening labor market, fragile financial markets and uncertainty over the direction of overseas economies.
The unemployment rate rose to a five-year high of 5.2 percent in May and jobs available to applicants became the scarcest on record. The Nikkei 225 Stock Average has fallen 11 percent since it advanced to an eight-month high on June 12.